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One of London’s best known fixed-income analysts has said the success of Lloyds Banking Group’s exchange of old debt into new so-called “coco bonds” does not mean the bonds will be the “next big thing” and that their use is still to undergo a “real test”.

Lloyds said today it had successfully raised £8.5bn (€9.44bn) in new debt, most of which is via coco bonds that convert to equity in times of stress, marking a major step in the bank's £22.5bn recapitalisation to help move it away from UK government support.

However, Gary Jenkins, head of fixed-income research at broker Evolution Securities, said in a research note to clients this morning that any new market for coco bonds remains dependent on regulators demanding banks raise this type of capital, and on investors’ willingness to buy them as part of a cash exchange, instead of an exchange of impaired bonds, in LBG’s case.

Jenkins said: “We still do not think that a successful result in this exchange necessarily means that cocos will become the next big thing. They might, if regulators insist that large portions of the banking sector need to raise more capital, and that cocos were there preferred option.”

He added: “The real test would be if bond investors were prepared to invest in cocos that were being issued as a new instrument in exchange for cash, rather than for existing impaired bonds.”

Contingent-convertible bonds are designed to strengthen Lloyds’ finances and are a crucial component of the 43.5%-government owned bank's plan to wriggle free of the state’s expensive asset protection scheme.

The new form of contingent-convertible securities are expected to be adopted by other banks looking for fresh capital, though fixed-income analysts have mixed views on their appeal to investors.

Lloyds is carrying out a non-US bond exchange offer and a US exchange offer. The bank said it raised the £8.5bn of contingent core tier-one and core tier-one notes through its non-US bond exchange offer, and added that its US offer is already heavily over-subscribed.

Lloyds said the non-US offer attracted strong investor demand and the company had received offers to exchange £12.51bn in existing securities.

In a statement the bank said: “We are pleased to announce that our non-US exchange offer has been very positively received by investors and significantly oversubscribed… Today’s announcement represents an important milestone in our capital-raising exercise."

The second offer, which is a US bond-exchange offer, has already received over $2.7bn (€1.8bn) of offers to exchange, even though the original maximum available was only $800m, the bank said. It added that it will now increase this amount to $985.6m.

Lloyds is also to price and set shareholder entitlement levels on a £13.5bn rights issue later today, which comes ahead of its shareholders voting on the capital-raising at an extraordinary general meeting in Birmingham on Thursday.